Agreement for Legal Services

On March 23, 2007 e.Digital Corporation (the “Company”) entered into an agreement for legal services and contingent fee arrangement (“Agreement”) with Duane Morris LLP. The Agreement provides that Duane Morris will be the Company’s exclusive legal counsel in connection with the assertion of the Company’s flash memory related patents against infringers (“Patent Enforcement Matters’).

Duane Morris has agreed to handle the Company’s Patent Enforcement Matters and certain related appeals on a contingent fee basis for Duane Morris time. Duane Morris also has agreed to advance certain costs and expenses including travel expenses, court costs and expert fees. The Company has agreed to pay Duane Morris a fee equal to 40% of any license or litigation recovery related to Patent Enforcement Matters, after recovery of expenses, and 50% of recovery if appeal is necessary. The Company may seek alternate representation if Duane Morris is unable or unwilling to represent specific litigation and any related recovery is excluded from the contingent fee arrangement.

Anything DM gets us will require us to pay DM. I have NO problem with that since 60% of bupkis = bupkis. I was very glad to hear that patent enforcement actions could begin this quarter. Could be a very nice fiscal 2008 for investors.